Dissertation Sample        Logistics Outsourcing

Introduction

1.1 Background
1.1.1 Present situations of Logistics Outsourcing around the world

Over the world, outsourcing of logistics functions to partners, known as “third-party logistics providers”, has increasingly become a powerful alternative to the traditional, vertically-integrated firm. A growth in the number of outsourcing partnerships has contributed to the development of more flexible organizations, based on core competencies and mutually beneficial longer-term relationships. A 1995 survey of the chemical industry by Van der Steen and Siegel (1995), for example, found that the average number of outsourcing partnerships per company grew from 1.5 in 1989 to 5.5 in 1994. Overall, some 60 per cent of Fortune 500 companies report having at least one contract with a third-party logistics provider (Lieb and Randall, 1996).

A report published by fedex announced western Europe invested more fund(65%) to TPL than Northern America(49%) and Asia(50%), and 32% of Asia enterprises outsourse their logistics service function to TPL, in Europe the rate is 29%, in Northern America the number is 16%, it showed us logistics outsourcing in Asia is more active than other area of the world. Around the word, there Dissertation is provide by Custom Thesis http://www.ukthesis.org/are more than 70% enterprises want to outsource their logistics service function to TPL, because it can reduce lots of costs and shorten the period of order, in Asia generally shortened from 9.8 days to 7.9 days and in Northern America, generally shortened from 25.6 days to 18.3 days. (http://www.logistics-smu.net, 2006)

1.1.2 Present situations of Logistics Outsourcing in China and in Beijing

China external logistics reached a total value of RMB 48 trillion in 2005 with a yr-on-yr growth of 25.2%, which was a little lower than the previous year but still remained a rapid increase. Structurally, as the industrial product logistics developed fastest, naturally it took the largest proportion in total value of the external logistics; whereas the agricultural product logistics increased slowest, and its proportion was rather small.

The total value of China external logistics amounted to RMB 26.8 trillion in the first half of 2006, rising 15.3% compared to the 1st half of 2005 (calculated at comparable price, hereafter the same in this paragraph) , but its growth rate declined by 1%, which was mainly caused by decreasing growth rate of industrial product logistics; The total value of industrial product logistics was RMB 23.4 trillion, up 15.6% compared to the 1st half of 2005, but its growth rate declined by 1.2%; the total value of import logistics was RMB 2.95 trillion, up 14.2% compared to theDissertation#p#分页标题#e# is provide by Custom Thesis http://www.ukthesis.org/ 1st half of 2005, and its growth rate increased by 0.2%; The total value of agricultural product logistics reached RMB 461.5 billion, growing 5.1% compared to the 1st half of 2005, its growth arte remained almost the same as the 1st half of 2005. (http://www.logistics-smu.net, 2006)

The total expense of China external logistics was RMB 1678.6 billion in the first half of 2006, rising 14.7% compared to the 1st half of 2005 (calculated at current price, hereafter the same in this paragraph), and its growth rate increased by 1.2%. It was mainly because of the sharp rise of energy cost that caused the common rise of transportation fee. However, the ratio of the total expense of external logistics to GDP continued to drop from 18.6% in 2005 to 18.4% in the first half of 2006, down by 0.2%. (http://www.logistics-smu.net, 2006)

From the view of total logistics expense structure, in the first half of 2006, transport cost was RMB 932.9 billion, rising 12.9% compared to the 1st half of 2005, and its growth rate up 0.8 by 0.8%, which maintained almost the same as compared to the 1st half of 2005 with a proportion of 55.6% to the total expense. The storage cost was RMB 531.4 billion, rising 18.6% compared to the 1st half of 2005, and its growth rate ascending by 2.4%, the storage cost shared 31.7% of the total expense, ascending by 1.2% compared to the 1st half of 2005. Management cost RMB 214.4 billion, rising 13.2% compared to the 1st half of 2005, and its growth rate increased by 0.2%, moreover, it shared 12.8% of the total expense, but the proportion declined by 0.1% compare to the 1st half of 2005. (http://www.logistics-smu.net, 2006)

1.2 Research Objective

The main objectives can be divided into the following four parts:

1. To analyze the performance of the existing logistics service providers of MSG Food Company
2. To set up a performance appraisal system for MSG in logistics service providers
3. To establish the requirements/benchmarks from the survey of the users of MSG
4. To select the logistics service provider candidates of MSG.

1.3 Dissertation Structure

This dissertation is structured in the following five chapters
ChapterⅠ: IntroductionDissertation is provide by Custom Thesis http://www.ukthesis.org/
ChapterⅡ: Literature Review
ChapterⅢ: Methodology
ChapterⅣ: Main Findings
ChapterⅤ: Conclusion/Recommendations

Chapter 2 Literature Review
2.1 Introduction

As the modern logistics rapidly develop, “Logistics Outsourcing” frequently appears as term. According to the search results on Emerald, 224 research papers the key words on logistics outsourcing can be found in 2003 and 221 results in 2004, 288 and 327 results can be found in 2005 and 2006 respectively. (#p#分页标题#e#http://www.emeraldinsight.com) There are 820,000 papers about Logistics Outsourcing in Google in 2008. (http://www.google.com)

The above data indicates the concept and use of logistics outsourcing rapidly develop. Logistics Outsourcing is a new thing during the few years.

From further analysis about relevant research papers, as the modern logistics rapidly develop in China, recent research papers on logistics service function have covered from logistics operations within enterprises to logistics outsourcing to third-part logistics. According to Smichi-Levi et al. (2003), logistics outsourcing was used as tool to reduce costs dramatically.

2.2 The previous research

2.2.1 The concept and necessity of Logistics Outsourcing

‘Outsourcing, third-party logistics and contract logistics generally mean the same thing (Lieb et al. 1993). It has been defined as multiple logistics services provided by a single vendor on a contractual basis. (Mohammed 1998) They offer “at least two services that are bundled and combined, with a single point of accountability using distinct information systems that are dedicated to and integral to the logistics process” (Bradley 1994). It should, however, be noted that outsourcing “may be narrow in scope” and limited to one type of service (e.g., warehouse) only (Lieb et al. 1993). According to Bradley (1994) there is no difference between outsourcing logistical functions and any other procurement process. He asserts that like a reliable supplier of materials and parts, contract logisticians should also provide a high level of customer satisfaction so that their clients can become a tougher competitor.’(Mohammed 1998)Dissertation is provide by Custom Thesis http://www.ukthesis.org/

Organizations keep their core competencies and commit other activities to providers as outsourcing in order to cut costs. Non-core activities would waste more costs because of less professional experiences, knowledge and essential facilities they have. As Quinn and Hilmer (1994) indicated, an organization should:
 Identify its “core competencies” (these being “those activities in which it can achieve definable pre-eminence and provide unique value for customers”) and commit the organization’s resources to these activities; and
 Outsource all the other activities required for which the organization “has neigher a critical strategic need nor special capabilities.” (Brewer et al. 2001)

An Figure can demonstrate it clearly as following

Figure: A risk management model for outsourcing (source: Lonsdale, 1999)

2.2.2 The selection of logistics provider for outsourcing#p#分页标题#e#

The selection of TPL providers is a complex process, it is difficult to select the TPL provider which meets the requirements of enterprise from the many TPL providers. Reference to the experience of choice of domestic and foreign TPL providers, the researcher found the method AHP (analytic hierarchy process) and RFP were adopted by enterprises. But AHP (analytic hierarchy process) was more popular than RFP and more enterprises would like to adopt AHP to conduct.

AHP (analytic hierarchy process) has been described as an indispensable tool to study for both practicing managers and academic researchers to conduct research for making business decisions and examining management theories respectively. (Eddie et al. 2002), and AHP is a kind of multiple criteria decision making (MCDM) (Arbel and Orgler, 1990). In the early 1970s, Saaty explored AHP in response to the distribution of scarce resources and planning needs for the military. (Saaty, 1980)Dissertation is provide by Custom Thesis http://www.ukthesis.org/

The own characteristics of selection of TPL providers are suitable for using AHP, evaluating TPL providers should be conducted from multiple perspectives, multiple factors. It can set up different index from different perspectives (e.g. price, quality, response rate and service) in order to establish a multiple strata system. In mainland China, lots of enterprises used AHP to select their suitable TPL providers.

The other selection method of logistics provider is RFP (Request for proposal), the U.S. enterprises usually adopt it. In this approach, enterprises should first set up their RFP (Request for proposal), and then supplemented by a detailed survey and evaluation, the final, make sure the third-party logistics candidates. (Ketler M.A. et al., 1995)

2.2.3 The process of Logistics Outsourcing

According to 2006 National Survey of logistics, manufacturing logistics outsourcing, especially in the outsourcing of sale logistics obviously increased, the growth rate is 5 percent to 10 percent, the growth rate of transportation and warehousing outsourcing is 10% to 15%. Among them, in 2005, the percentage that enterprises outsourced their transport business to a third-party company accounted for 67.1%, than the same period in 2005 increased 2.5 percentage points.
(Junfa, http://www.chinawuliu.com.cn/bake/uploadFace/2006tj.htm)

As rapid specialized division, third-party logistics market has become more detailed, the degree of specialization also was improved, therefore, specialized logistics market and specialized logistics companies were established. Such as Supermarkets logistics, home appliances logistics, clothing logistics, vehicle logistics, tobacco logistics, food logistics, cold chain logistics and so on. Above factors promoted the rapid development of third-part logistics. The government expected that the market size of third-part logistics will be more than 130 billion Yuan in 2007, increasing near 30% than 2006. (Xiong, L., 2007)#p#分页标题#e#

According to the years of practical experience in the logistics field, following process of logistics function outsourcing is usually adopted in general: (McGinis K., Walstrom J., 1993)
 Enterprises employ logistics experts
 Experts gather informationDissertation is provide by Custom Thesis http://www.ukthesis.org/
 Experts assist enterprise to build RFP
 Enterprise send RFI(Request for information) to TPL providers
 TPL providers reply RFI to enterprise
 According the RFI TPL providers replied it to enterprise, enterprise conducts the initial assessment, narrow the scope of TPL providers
 Send RFP(Request for program) to interested TPL providers
 TPL providers set up a subcommittee to assess the RFP
 TPL providers set up multi-functional group after deciding to tender
 Multi-functional group research the RFP respectively
 Group build the reply of RFP/Q
 TPL providers send the reply of RFP/Q to enterprise
 Determine the final partnership TPL provider
We can understand the above process clearly as following figure:

 
Figure: EPR selection flow  (source: McGinis K., Walstrom J., 1993)

2.3 Conclusion

This chapter mainly focused on the existing analysis of domestic and international logistics function outsourcing. Most papers only were analyzed from the theoretical aspects of the existing problems, for instance: “Third part logistics choice” (Ketler, M.A. et al, 1995) did not been analyzed from problems of an actual company, it was only explained from theoretical aspect. Through literature review, the author has come to a clear theoretical basis, in the methodology chapter the author will use suitable theory to analyze the actual problems of MSG under the national conditions of China.

Chapter 3 Methodology

3.1 Introduction
In order to help MSG to choose TPL providers more efficiently and fulfill different research objectives, the research adopts three kinds of research methods, they are focus group, interview and questionnaire. The selection of research philosophy, research approach and research strategy will be discussed first, followed by the detailed description of setting, participants, material and procedures of the three kinds of research methods. In the chapter, the author deeply analyzes each of methods of the survey, and indicates the limitation of the collected data and methods.

3.2 Research Philosophy
The researcher used positivism to be the research philosophy. Logical positivism was a twentieth century attempt to combine empiricism and rationalism (Hjørland, 2005). The principal purpose of this research is that help MSG Food Company to select best suitable TPL provider to outsource their logistics function service. In the whole research, there is a standard to identify it, it is scientist process and method, and also it belongs to natural science field. Positivism has been an extremely influential tendency, not only in research, but also in other areas of society ( Mueller, 2003). Therefore, the researcher used positivism to be the research philosophy.#p#分页标题#e#Dissertation is provide by Custom Thesis http://www.ukthesis.org/

3.3 Research Approach
The approach of Deductive were used in this research, The deductive research approach is a theory testing process, which commences with an established theory or generalization, and seeks to see if the theory applies to specific instances (Hyde, 2000). According to Factor Rating theory, it mainly talks about the method of calculating factors to evaluate the result, the result conducted by factor rating theory usually more accurate and scientific. The procedure is from theory to test process, so the author chose deductive approach to research.

3.4 Research Strategy
The research paper adopted survey as the principal research strategy which involved qualitative focus group and interview as well as quantitative questionnaire as the data collecting methods. In the research paper, the author will built a model to evaluate each of TPL providers, the TPL provider which gets the highest marks in the final would be the best suitable providers for MSG, and MSG would outsource their logistics service function to it. First of all，through focus group to build evaluating index for model, the way of selecting suitable factors for evaluating TPL providers is group discussing, the focus group will build some factors to evaluate, and the author collected relevant data from interviews and questionnaires.

3.5 The steps of data collection
3.5.1 Focus group
In the research paper, focus group is used to build the option of evaluation system for TPL providers. The members of focus group are 1 scholar from Beijing Jiaotong University, 2 managers from MSG and 1 expert from Beijing logistics association. Through their discussing, the final option of evaluation system will be built, the later interview and questionnaires will based on the result of focus group. It can build a scientific and external option of evaluation system by the perspectives from scholar, relevant experts of association and managers from MSG food company. And also, it can help MSG to choose reasonable TPL providers.

3.5.2 Interview
In the research, the author will interview two times, the first time is mainly about interviewing the five experts, the author will invite them to mark the factors which conducted from focus group,  because they have strong professional knowledge and experiences, they can mark the factors professionally from the interview. After the evaluation factors are built, the author will interview the relevant managers of MSG Food Company to collect relevant data.

3.5.3 Questionnaire
The questionnaire will be sent to the leader of supermarkets that the TPL firms are servicing to. The questionnaire included four parts of total, the first part is the participants of the survey on their basic personal information, including gender, company and work title. The second part is the service enterprise provided; including some relevant aspects about the transport ability, the reliability rate, the information system level and so on. The third part is enterprise facilities, including package, warehouse, tools of transport and so on. The final part is about staff service, including the staff’s education level, service level and so on.#p#分页标题#e#

The author will interview minimum 40 supermarkets, there are 50 supermarkets the TPL providers are servicing to. After data collected, the author will use Matlab and Excel to analyze.Dissertation is provide by Custom Thesis http://www.ukthesis.org/

3.6 Conclusion
Although there are some difficulties during the process of interview and sending questionnaires, the useful data had been collected by author, the focus group effectively conducted the first evaluation factors. Through the above methods, the author had found lots of useful data and will reach the research questions and research objectives from the data after analyzing them.

Chapter 4 Main Findings
4.1 Introduction
In the chapter, main findings and lots of data are generated from interviews, focus group and questionnaires. The author used Matlab software to analyze data answered by participants. Many mathematic formulas were used in this chapter, through the scientist calculator, final result was built and suitable suggestion was provided to MSG Food Company in the end of the chapter.

4.2 Data Analysis
4.2.1 Original data handling

50 of total questionnaires were sent to participants, the main participants are supermarkets that the five TPL providers are servicing to. 46 of responded questionnaires were available, the author also effectively interviewed 5 persons and held a focus group.

In the prior research, the main target of focus group was designing the influencing factors to the 5 TPL providers by experts, through the experts discussing, eight factors were designed finally, they are: outsourcing fee, freight volume, operational capacity, delivering goods in time, quick response, reliability rate and staff qualification and experience. Then, according to the eight factors designed by experts, the author got relevant data for the factors from questionnaires and interviews.

The first step of analyzing data is handle the original data collected from questionnaires and interviews, we need to put all the data from many questionnaires to the one data. It is helpful for continue analyzing and calculating.

I use following formula to handle the original data:
   

  — the final scoreDissertation is provide by Custom Thesis http://www.ukthesis.org/
  — numbers of available questionnaires
  — score of each question

The result of handling original data as follow：

          Firms
　
Options Firm 1 Firm 2 Firm 3 Firm 4 Firm 5
 Score Score Score Score Score
Outsourcing
Fee (Yuan/kilogram) 0.8 1.3 2.3 2 1.5#p#分页标题#e#
Freight Volume
(ton) 25.8 34.3 63.2 54.1 38.9
Operational Capacity 3.3 3.7 4.8 4.4 3.9
Delivering goods
in time 2.6 3.1 4.2 4 3.5
Quick Response 2.5 2.9 4.3 3.9 3.3
Reliability Rate 3.1 3.3 4.9 4.2 3.7
     
Staff Qualification
and Experience 2.3 2.7 4.6 3.9 3.1

4.2.2 Weights calculating of each influencing factorsDissertation is provide by Custom Thesis http://www.ukthesis.org/

First step is interview experts to mark the each of influencing factors with how the factors are important they think , in order to evaluate the providers resonantly from the factors, I need to build the weights for each of factors. For better results purpose, I interviewed 5 experts to mark the eight influencing factors, they marked each factor from score 1 to 10, 1 is the lowest score, 10 is the highest score, the result of experts marking as follows:

      Experts

　
Options Expert 1 Expert 2 Expert 3 Expert 4 Expert 5
 Score Score Score Score Score
Outsourcing
Fee 8 10 9 8 10
Freight
Volume 4 6 5 9 9
Operational Capacity 6 8 5 10 7
Delivering goods in time 10 10 9 10 7
Quick Response 5 8 5 6 7
Reliability Rate 9 10 8 10 8
     
Staff Qualification and Experience 6 5 9 10 6

Experts introducing:
Expert 1: Xiaodong Zhang, the professor of Beijing Jiaotong University.
Expert 2: Yuchun Song, the operation manager of MSG Food Company.
Expert 3: Guofeng Wang, the president of Beijing logistics association.
Expert 4: Chunsheng Zhao, the general manager of MSG Food Company.
Expert 5: Stephen, Ng. the president of IPS Hong Kong.Dissertation is provide by Custom Thesis http://www.ukthesis.org/

After experts marking the factors, the author needed to calculate them to the one final score for each of factors, the formula of calculating the final score as follow:

  
  — The value of each influencing factors
  — Each of experts

Through the calculating, the final score was calculated, details as follow:

      Experts

　
Options Expert 1 Expert 2 Expert 3 Expert 4 Expert 5 Final score
 Score Score Score Score Score #p#分页标题#e#
Outsourcing
Fee 8 10 9 8 10 9
Freight
Volume 4 6 5 9 9 6.6
Operational Capacity 6 8 5 10 7 7.2
Delivering goods in time 10 10 9 10 7 9.2Dissertation is provide by Custom Thesis http://www.ukthesis.org/Quick Response 5 8 5 6 7 6.2
Reliability Rate 9 10 8 10 8 9
      
Staff Qualification and Experience 6 5 9 10 6 7.2

And then, according to the final score I calculated, I use following formula to calculate the final weight that I want.

  
  — The weight of each influencing factors
  — The value of each influencing factors

The result as following table:

      Experts
　
Options Final score Final weight
Outsourcing
Fee 9 0.165
Freight
Volume 6.6 0.121
Operational Capacity 7.2 0.132
Delivering goods in time 9.2 0.169
Quick Response 9.2 0.114
Reliability Rate 9 0.165
Staff Qualification and Experience 7.2 0.132

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4.2.3 Evaluating the 5 firms

Until now, we have obtained the weights which we want, then, I also needed to handle the data from questionnaires and interviews to a standard, because each of factors have their own unit, for example: the unit of freight volume is ton, the unit of outsourcing fee is Yuan and the unit of quick response is score others marked it. They did not have same unit, so we do not evaluate them together, we should handle them firstly. I will use analysis software Matlab to calculate it, finally, the data will be changed to between 0 to 1, the formula I used as follow:
   ， ，
  — The value of firm   for influencing factor 
  — The number of firms

Through calculating, the result as following table:

 Firm 1 Firm 2 Firm 3 Firm 4 Firm 5 Weight
Outsourcing Fee 0.4167 0.2778 0 0.0833 0.2222 0.165
Freight Volume 0.1193 0.1586 0.2922 0.2501 0.1798 0.121
Operational Capacity 0.1642 0.1841 0.2388 0.2189 0.194 0.132
Delivering goods in time 0.1494 0.1782 0.2414 0.2299 0.2011 0.169#p#分页标题#e#
Quick Response 0.1479 0.1716 0.2544 0.2308 0.1953 0.114
Reliability Rate 0.1615 0.1719 0.2552 0.2188 0.1927 0.165
Staff Qualification and Experience 0.1386 0.1627 0.2771 0.2349 0.1867 0.132

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The process of calculating in Matlab as following:

After calculating, I obtained the final data on a same standard, now, the final evaluating will be done, the final score will be conducted from using the final data to multiply their relevant weight, the final result as follow:

 Firm 1 Firm 2 Firm 3 Firm 4 Firm 5
Outsourcing Fee 0.068939 0.04596 0 0.013781 0.036761
Freight Volume 0.014474 0.019242 0.035451 0.030343 0.021814
Operational Capacity 0.021732 0.024366 0.031606 0.028972 0.025676
Delivering goods in time 0.025266 0.030137 0.040825 0.03888 0.03401
Quick Response 0.016856 0.019557 0.028994 0.026304 0.022258
Reliability Rate 0.026719 0.028439 0.042221 0.036199 0.031881
Staff Qualification and Experience 0.018344 0.021534 0.036675 0.03109 0.02471
Result 0.192331（19.2%） 0.189235
(18.9%) 0.215771
(21.6%) 0.205569
(20.6%) 0.19711
(19.7%)

4.3 conclusions
As the final data show, the firm 3 is the best suitable TPL provider for MSG Food Company. The firm C obtained the highest score in result, it obtained highest scores in many factors except factor outsourcing fee, because it had the expensive outsourcing fee, but in my opinion, the firm C can provide better quality service, a good performance is more important to a company, so I suggest the leaders of MSG Food Company could choose firm C to cooperate. 
 

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